Evergreen Corporation Manufactures Circuit Boards and Is in the Process

question 25

Multiple Choice

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$
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The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is:

• A) $2,625,000.
• B) $1,865,672.
• C) $1,724,138.
• D) $2,155,172.

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Definitions:

Conversion Costs

Expenses incurred in the process of converting raw materials into finished products, typically including labor and overhead.

Processing Department

An organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product.

Work in Process Account

An account that tracks the costs of unfinished goods in the manufacturing process at any given time.

Process Costing

This is an accounting methodology used to allocate costs to units of product in industries where the production process is continuous and homogenous.